Central banks set the price of money in their economies. Their interest-rate decisions, and what they say about future decisions, are the single most powerful driver of currencies, bond yields and, increasingly, stock indices.
| Central bank | Currency | Main goal | Decisions per year |
|---|---|---|---|
| Federal Reserve (Fed) | USD | Maximum employment and stable prices (2% inflation) | 8 FOMC meetings |
| European Central Bank (ECB) | EUR | Price stability: 2% inflation over the medium term | 8 meetings |
| Bank of England (BoE) | GBP | 2% inflation | 8 meetings |
| Bank of Japan (BoJ) | JPY | 2% inflation | 8 meetings |
How a decision moves markets
It's the surprise that moves price
Markets price in expected decisions well in advance. If everyone expects a 0.25% cut and the bank cuts 0.25%, the reaction can be small. What moves price is the surprise: a bigger or smaller move than expected, or a change in the bank's guidance about what comes next. Traders call guidance that leans toward higher rates hawkish, and toward lower rates dovish.
What to watch
- The decision and the vote split.
- The statement and press conference: the governor's words often move markets more than the decision.
- Projections: the Fed's quarterly "dot plot" shows where policymakers expect rates to go.
- Speeches and minutes between meetings, which can shift expectations.
Key takeaways
- Central banks set interest rates, the most powerful driver of currencies and yields.
- The Fed, ECB, BoE and BoJ each target around 2% inflation and meet about eight times a year.
- Markets react to surprises and changes in guidance, not to fully expected decisions.
- Hawkish means leaning toward higher rates; dovish means leaning toward lower rates.